Looking for partners in Watercolor purchase

[bamasam]

Hi everyone. I'm new to this sight but love Sowal. My family visits 5-6 times a year. We usually stay in Seaside. We have recently decided to start looking to purchase a home in Watercolor, but have decided that we'd like to have a partnership where we'd own 1/3 or 1/4 in a home. We have 1 partner already and possibly another (not definite on that one). We know that it is a buyer's market and we've got time to sit and watch until something comes along that the partnership can agree upon. We already have certain parameters that we've set. We don't want to spend more than $350,000 per partner whether it be a 3 or 4 person partnership. We'd like to be around Camp Watercolor as we have small children. We don't want to rent the house, but have not ruled out that possibility. We will likely set up the partnership as an LLC for liability purposes. We actually went and met with a couple that was having a house built in WC already and it was a beautiful home, but it was just not the right location for us. If there is anyone out there who would be interested or would like more information please respond. Or if any of you real estate professionals have any advice to give, or know of anyone who might be interested we'd appreciate the help and remember that this could result in a sale for you!

 

[Bobby J]

You may be able to walk into a partnership with someone that can not sell right now. I have heard of people looking for partners to keep the house afloat until market gets strong again. Especially a long term investment. These sellers will bring new investors in as equal partners to help make payments. The initial investment of 20% becomes a wash and parties become equal. The benefit for current owner is it stops some of the monthly pain and the benefit for the new investor is he/she can get in with little or no money down. Of course there is more to it per each owner but the market offers allot of opportunity right now.

 

[bamasam]

We would not be opposed to that if we felt that the home fit our needs. Of course we would want to make sure that we had the deed and such ammended so it would reflect whatever ownership interest we had in the home. I'm not really sure how to locate these owners that would be willing to do this other than to post here and to talk to agents and let them know what we're looking for. Any ideas?

 

[sandjewel]

We have two properties in Seagrove Beach looking for partners or outright sale. We have plans to build 2000 to 2300 sf homes on both with total costs for lot and house around $550K to $600K. Walk to beach.

Contact me if you have any interest. 513-307-7250

 

[30A Skunkape]

I was listening to Clark Howard's show once and he opined that 'going in on' a property beyond your price range with other people was a huge gamble. He pointed out that relationships cool, people die, people lose enthusiasm regarding the property, people get divorced, people move across the country, people go bankrupt, people go to prison; all unforeseen issues that potentially change the entire dynamic of liability and ownership...basically, you enter the deal assuming that nothing will change, and life ensures that rarely happens. It just seems that spending money on a nice vacation rental and not ever having to worry about liability makes sense fiscally, but not emotionally. Just be wary before you dive in

 

[Beach Runner]

Two of our neighbors in Seagrove have sold fractionals and haven't had any problems from what they've told me. We are trying to sell a fractional of ours as well.

 

[bamasam]

Thanks for the advice on partnerships. For all of the reasons you mentioned my husband (who is a CPA) and I have opted to structure this partnership in the form of an LLC and we will have a very detailed operating agreement that addresses all of the items that you mentioned. We would spend time making sure that any additional partners who might join us in this venture would be completely comfortable with any and all of the provisions of the agreement prior to moving forward with our group.

 

[GreenWaveDave]

Thanks for the advice on partnerships. For all of the reasons you mentioned my husband (who is a CPA) and I have opted to structure this partnership in the form of an LLC and we will have a very detailed operating agreement that addresses all of the items that you mentioned. We would spend time making sure that any additional partners who might join us in this venture would be completely comfortable with any and all of the provisions of the agreement prior to moving forward with our group.

How would you recommend structuring a partnership? I know LLC is the way to go as far as form of ownership, but as far as creating and enforcing an operating agreement, creating some kind of reserve fund for maintenance and repairs, and making monthly mortgage payments and annual tax payments, what is the best way to set this up and make sure it is enforcable so to protect all owners interests?

 

[SHELLY]

Thanks for the advice on partnerships. For all of the reasons you mentioned my husband (who is a CPA) and I have opted to structure this partnership in the form of an LLC and we will have a very detailed operating agreement that addresses all of the items that you mentioned. We would spend time making sure that any additional partners who might join us in this venture would be completely comfortable with any and all of the provisions of the agreement prior to moving forward with our group.

In one sentence, what is your main objective that requires you to set up an elaborate partnership scheme with strangers vs. renting or buying outright?

GWDave pretty much hits the nail on head...the devil is in the details.


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[bamasam]

Hi all - not Sam but Sam's husband. I figured I'd give you an answer as opposed to allowing my wife to translate.

Dave - an LLC affords the owners several advantages from both a tax and legal perspective. Most importantly, an LLC provides the group of owners the luxury of seperate legal liability. As you may know, an LLC, like an S or C corp, may exist and operate as a separate legal entity under the law. Hence the need for an operating agreement.

As far as an operating agreement is concerned, our agreement has a contra asset account for the individual items you mentioned - R&M, ect. The reserve account can be administered in sevaral ways, i.e. credited annually, quaterly, monthly, or in an other fashion the partners deem most appropriate.

With respect to management of mortgages, the most common issue involves "joint and several" liability with a single mortgage on the investment property. That is, does each and every partner want to be liable for the other partners share of a single loan. I would suggest that no one opt for that position for the very reasons you mention in your post - change in economic status of one partner can adversely impact the other partners fiscal position.

The best situation is to have each partner pay cash for their respective share of the home and not mortgage the investment property. That will allow each partner the peace of mind to know that the property is not collateralized by any other partner. In a perfect world, that ends the mortgage issue.

Now, short of that, if the partners wish to place a mortgage upon the investment property, it can be structed in a couple of fashions to limit the exposure and joint and several liability of the partners. One way to do this is to allow the LLC to hold the mortgage as opposed to the individual owners. There are some other hurdles that must be addressed by the partners and the underwriter of the mortgage for this type of arrangement to be successful (i.e. a significant portion of cash down at time of purchase and a mortgage balance considerablly less than the appraised value of the investment in question).

Additionally, if each owner in the partnership wishes to collateralize the home with an individual liability, then this would need to be done through a single lender. For example, if there were 3 partners, each partner could apply for an individual mortgage collateralized by the investment in question through Bank X. If Bank X issued three individual mortgages to each of the three partners, then Bank X would be the only secured leinholder of mortgages on the property. At that point, rank secured order of the mortgages would not be an issue (1st secured creditor, 2nd secured creditor, ect) becasue there is only on lienholder and it is Bank X exclusivly.

The daily/weekly/monthly administration of the payments can be handled in a number of ways. In our agreement, the partners will assume officer postions in the business (as is the case in any business). The officer roles defined in our agreement carry certian responsibilities. Of course, you also may consider outsourcing payment services to a thrid party.

I am sorry for the dissertation. As a disclaimer, I must say that the statment herin are netither specific professional accounting nor legal advice. You should always discuss these issues with your CPA or attorney prior to engaging in any such investment.

Casey